Business Model Vs. Business Plan

Business plan and business model are 2 very different notions. What’s the difference between the 2? The business model is the mechanism through which the business generates its revenue as the business plan is a document presenting the business’s strategy and expected financial performance for the a long time. As you can see, the business model reaches the guts of the business plan.

The business model describes the way the company is put within its industry’s value string, and how it organises its relations with its suppliers, clients, and partners in order to create profits. The business plan translates this setting in a series of tactical activities and quantifies their financial impact. Let’s dive in to these examples in greater details.

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It’s the most basic business model, the business sales the products and services it produces. In order for that business model to be viable, the company must generate enough sales to protect its production , distribution, and storage costs. Here the goal is to generate earnings by selling advertising space. CPM (cost per thousand): the advertiser pays the publisher a fixed amount for 1,000 impressions. CPC (cost per click): the marketer will pay the publisher each time someone clicks on the ad.

The amount paid can be set or established through an auction process. CPA (cost per action): the marketer pays each time a specific action is executed. An action can be a sale or a business lead for example. The total amount can be arranged or fixed as a percentage of the action value.

This business model is already somewhat more complex than the creation one considering that the business first need to purchase order to generate a large audience before it can appeal to advertisers. The business acts as an intermediary between your seller and the customer and takes a cut of each sell it can help generate.

This business model is normally less dangerous than the two 2 earlier ones (and for that reason less profitable) as the amount of investment required can be minimal. The business receives earnings from its clients at regular intervals. This business model has one clear advantage: the business knows in advance how much revenues it will generate. The flip part is that it often takes almost a year to recover the subscriber acquisition costs resulting in a lower cash generation at the beginning of the cycle.

The company offers 2 versions of its product. A free version with a restricted group of features which goals are either to improve awareness about the merchandise or to build a network effect. And a paid version, composed of more features, that it can create enough margin to hide the expense of the free users. The keys to success with this business model are to be able to generate huge network effect (example: Linkedin) and/or to convert a sufficient quantity of free users into paid customers (example: Uservoice).